I’ve started my own business. What hidden set-up and operational expenses do I need to budget for?
If you’ve already started up your own business I’m going to assume you already have a business plan in place supported by cash flow and profit and loss forecasts and you are monitoring your progress against these. Cash is king for all businesses, but never more so than in the early life of a business. Failure to allow for enough cash to cover hidden costs or lower revenues than expected is the number one reason why many new businesses fall over.
Some additional costs you might need to consider include:
Protecting your Intellectual Property “IP”
Registering business names through ASIC is a great start. It’s relatively inexpensive ($82 for three years) and a business can have multiple business names to trade under.
Business names in practice do very little to actually protect your IP, rather just provide you with the right to trade using the registered name. To properly protect things like your business logo and name you will need to register a trademark through IP Australia. Many businesses won’t necessarily do this right at the start as in realty their name is not that valuable at that point, but you really don’t want to leave it too long.
Less commonly in the early stage of a business, you may have developed or even acquired an idea or system that is unique. Registering a patent is the only effective way to protect such an asset. Registering a patent can be a very expensive and lengthy process and is best handled through a specialist patent lawyer.
Assuming your business is registered for GST, it is important to set aside the GST you have collected (after deducting the GST you have paid). Most businesses will have to pay this to the Tax Office on a quarterly basis. It’s not an expense of the business as you have collected it from your customers (and paid it to your suppliers), but it very easy to treat it as “yours” until the time comes when you have to pass it on to the Tax Office.
Income Tax Instalments
Most small businesses will pay quarterly instalments towards their tax. These will only commence when the business lodges its first tax return that shows a taxable profit, and that’s after deducting any brought forward losses from earlier years.
Whilst for many businesses this delays the tax burden, the first year it hits it can be tough as you have to pay the tax that’s due from the last year plus having to pay quarterly instalments for the current year all at pretty much the same time.
Where you are in business with another person, it is so important to lay down the rules of the road as to how you will work together, how the business will be run and if one of you wants to sell, how that will work. A Shareholders Agreement that documents this is absolutely vital and whilst legal costs will be involved in its preparation, it is may well save arguments not to mention significant costs down the track.
As you build your business, you may well be entering into major contracts with customers. Depending on the type of business you’re in, these may well require legal review or preparation. You need to allow for these costs in your budget. The same can be said for major supplier contracts and indeed contracts of employment for your staff.
The facts are at the moment is that unemployment is historically low and depending on the industry, experienced and quality staff can be hard to find. If you need to use recruiters, their costs can be significant and can quickly add up and catch you by surprise.
Will your business need specific licenses to operate, such as food handling or other certifications?
Have you considered all the major risks the business may face and at least considered insuring against them? Some like workers compensation insurance are compulsory.
Marketing and Design
Most businesses will have marketing and design costs to some degree. Some such as signage for retail premises, marketing materials and website design will at least have to be considered when the business starts and will almost certainly require ongoing expenditure over time.
Premises Fit Out
Whilst hardly a hidden cost, underestimating the final cost of fitting out the premises from where your business will operate is one of the most common mistakes that new business owners face.
As always, talk to your accountant who can help you ascertain what are the hidden costs that might apply to your business and help you prepare a business plan and financial forecast that properly takes them into account.
For professional assistance: www.bellpartners.com